McDonnell v. City of Omaha, Neb.

• Decision Date: 03 September 1993
• Docket Number: No. 92-3073,92-3073
• Citation: 999 F.2d 293
• Parties: , 125 Lab.Cas. P 35,839, 1 Wage & Hour Cas.2d (BNA) 1312, 1 Wage & Hour Cas.2d (BNA) 785 William C. McDONNELL; Robert J. Warsocki; Michael Dineen; Don E. Brunken; Verne Beers, Plaintiffs-Appellees, v. CITY OF OMAHA, NEBRASKA, Defendant-Appellant. National Institute of Municipal Law Officers; Nebraska League of Municipalities; Minnesota League of Municipalities; National League of Cities; National Association of County Officers; United States Conference of Mayors; National Public Employer Labor Relations Association; International Personnel Management Association, Amici Curiae.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 293

999 F.2d 293

123 A.L.R.Fed. 771, 125 Lab.Cas. P 35,839,

1 Wage & Hour Cas.2d (BNA) 1312,

1 Wage & Hour Cas.2d (BNA) 785

William C. McDONNELL; Robert J. Warsocki; Michael Dineen;

Don E. Brunken; Verne Beers, Plaintiffs-Appellees, v. CITY OF OMAHA, NEBRASKA, Defendant-Appellant.

National Institute of Municipal Law Officers; Nebraska

League of Municipalities; Minnesota League of

Municipalities; National League of Cities; National

Association of County Officers; United States Conference of

Mayors; National Public Employer Labor Relations

Association; International Personnel Management

Association, Amici Curiae.

No. 92-3073.

United States Court of Appeals,

Eighth Circuit.

Submitted March 15, 1993.

Decided July 2, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Sept. 3, 1993.

Thomas O. Mumgaard of Omaha, NE (argued), (Kent N. Whinnery on the brief) for defendant-appellant.

John Fahey of Omaha, NE (argued), for plaintiffs-appellees.

Before JOHN R. GIBSON, Circuit Judge, BRIGHT, Senior Circuit Judge, and WOLLMAN, Circuit Judge.

JOHN R. GIBSON, Circuit Judge.

The City of Omaha, Nebraska, appeals from summary judgment entered against it on claims filed by William C. McDonnell, Robert J. Warsocki, Michael Dineen, Don E. Brunken, and Verne Beers, all assistant fire chiefs of the Omaha Fire Division. The chiefs sought a declaratory judgment that they were entitled to overtime wage benefits specified in sections 1-19 of the Fair Labor Standards Act. 29 U.S.C. §§ 201-219 (1988 and Supp. III 1991). The City contended that the chiefs were not entitled to these overtime benefits because the chiefs were employed in an executive or administrative capacity, and therefore, exempt from the Act's overtime provisions under 29 U.S.C. § 213(a)(1). The district court rejected this argument, applying regulations which establish a duties and salary test to determine whether an employee is a bona fide executive. See 29 C.F.R. § 541.1(a)-(f) (1991). ¹ The district court concluded that the City failed to meet the salary test because the chiefs' pay was subject to reduction for absences of less than a day for personal reasons, sickness, or disability. On appeal, the City argues that the district court incorrectly applied the salary test, and that the mere possibility of salary reduction is insufficient to prevent an employee from being a salaried executive. We reverse and remand for entry of judgment in favor of the City.

In general, the FLSA requires employers to pay overtime compensation for hours worked in excess of a 40-hour work week. See 29 U.S.C. § 207. The FLSA, however, exempts from overtime pay provisions "any employee employed in a bona fide executive, administrative, or professional capacity." 29 U.S.C. § 213(a)(1). An employee may qualify for the executive exemption if the employee meets both the "duties" and "salary" requirements set forth in 29 C.F.R. § 541.1(a)-(f). The regulations define a "bona fide executive" as an employee with supervisory duties who is paid on a salaried basis. Id. The test for whether an employee is paid on "a salary basis" is set out at 29 C.F.R. § 541.118(a) (1991):

An employee will be considered to be paid 'on a salary basis' within the meaning of the regulations if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided below, the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked.

The primary function of assistant fire chief is to serve as the administrative and supervisory head of the fire division. The chiefs supervise between 10 and 200 individuals and participate in hiring, firing, and promotional decisions. The chiefs admit the supervisory nature of their duties.

The chiefs claim that they do not qualify as bona fide executives because they are not paid on a salaried basis. The city pays the chiefs (on a bi-weekly basis) an annual salary of $56,114 or more. The City has determined that a 28-day work cycle is conducive to the operational needs of the fire department. The chiefs claim that anytime they are required to work in excess of 212 hours within a given 28-day work cycle, they are entitled to overtime compensation under the FLSA. The basis for the chiefs' claim is contained in the following passage from McDonnell's affidavit:

When Plaintiffs or other members of the Fire Division are absent from work for less than a day, the hours they are absent are subject to deduction from their wages unless the employees are able to use annual leave, sick leave or other leave with pay entitlement (e.g., "funeral leave"). If, for example, the employee absents himself from work, for less than a day, to handle personal affairs, the amount away from the job would be subject to wage deduction. This is the policy of the City of Omaha and has been the policy during the period relevant to this cause of action.

Both sides filed summary judgment motions. The district court looked to the FLSA regulations, and concluded that the City's scheme of compensation violated the salary basis test set forth in 29 C.F.R. § 541.118(a). McDonnell v. City of Omaha, No. CV90-0-17, slip op. at 3 (D.Neb. June 17, 1991). The district court relied on a 1986 Department of Labor letter ruling which stated that salary deductions "for absences of less than a day's duration for personal reasons, or for sickness or disability, would not be in accordance with section 541.118(a)(2) and (3)," and on a Ninth Circuit decision, Abshire v. County of Kern, 908 F.2d 483, 486-90 (9th Cir.1990), cert. denied, 498 U.S. 1068, 111 S.Ct. 785, 112 L.Ed.2d 848 (1991), ruling that a similar pay policy was inconsistent with salaried status. Id. The district court granted partial summary judgment in favor of the chiefs.

The parties then tried the issue of damages on stipulated facts. The district court first held that a new interim regulation promulgated on September 6, 1991, was not retroactive because it was substantive in nature and designed to stem any accrual of "additional" liability to state and local governments. McDonnell v. City of Omaha, No. CV90-0-17, slip op. at 3 (D.Neb. Aug. 11, 1992). The regulation provided that deductions from accrued personal leave and sick leave for absences of less than one day do not preclude an employee from being considered a bona fide executive. 56 Fed.Reg. 45,826 (Sept. 6, 1991). On the issue of liquidated damages, the court accepted a stipulation that the assistant chiefs never actually lost pay as a result of their absences for less than a day because the chiefs (like other city employees) could use their accumulated paid leave to cover these absences. The district court nevertheless awarded backpay and liquidated damages, and the City appeals.

The City argues that the district court incorrectly applied the salary test, and that the mere possibility of deductions from pay for short absences when an employee lacks accumulated paid leave is insufficient to prevent an employee from being considered a salaried executive. The City further argues that the district court misconstrued a deduction of compensatory benefits as a deduction against salary, and that public policy requires reversal. ²

Exemptions to the FLSA must be narrowly construed in order to further Congress' goal of providing broad federal employment protection. Mitchell v. Lublin, McGaughy & Assoc., 358 U.S. 207, 211, 79 S.Ct. 260, 263-64, 3 L.Ed.2d 243 (1959); Abshire, 908 F.2d at 485. Employers have the burden of proving that the exemption applies, and they must demonstrate that their employees fit "plainly and unmistakably within [the exemption's] terms and spirit." Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 456, 4 L.Ed.2d 393 (1960). We review the district court's grant of summary judgment de novo to determine whether the record, when viewed in the light most favorable to the non-moving party, shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

The City first argues that an employee should not lose exempt status merely because the employee may lose pay for absences from work of less than one day. The chiefs urge us to reject the City's argument because the City failed to present any evidence that it paid the chiefs on a salary basis. The chiefs point out that the record before the district court was quite limited, and that it contained no evidence that the chiefs did not suffer a loss of pay until the parties filed stipulations after the court's original order granting summary judgment.

The City filed an affidavit in the district court stating that it paid each chief an annual salary of $56,114 or more. The chiefs filed an affidavit stating that when they were absent from work for less than a day, their compensation was "subject to deduction ... unless [they] are able to use annual leave, sick leave, or other leave with pay entitlement." The regulation specifically defines a salaried employee as one whose compensation "is not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.118(a). The evidence in the record establishes that the City paid the chiefs a predetermined amount, and this amount was not reduced for part days missed from work unless the employee had no accumulated paid leave time. For the reasons more fully discussed below, we do not believe that a contingent deduction in pay defeats salaried status. The affidavit filed by the chiefs adds a contingency that was in the record before the district court entered partial summary judgment. Moreover, the stipulation that the chiefs suffered no...